Despite wage increase and inflation we don’t yet need to fear a drastic interest rate rise, says Duncan Farmer.
A recent headline screamed: “Is this the last chance to get a cheap mortgage?” in much the same style that furniture stores announce that their sale ends at midnight. The answer to the question in the headlines is: probably not, newspapers like to give their readers a jolt every now and then even if it’s only illusory.
The latest warning about an increase in interest rates came from comments made by Sir Dave Ramsden, deputy governor of the Bank of England and a member of its Monetary Policy Committee who said that wages were going up, thereby adding to pressure on inflation which in turn would make he and his colleagues seriously consider adding a little bit more to our monthly mortgage bills.
What is slightly more alarming about Sir David’s intervention is that he has in the past favoured keeping rates down rather than putting them up. “Wage growth has now been rising steadily over the past six months,” he said at a Barclays conference on inflation. “And unit labour costs have been rising towards growth rates consistent with overall inflation at target. The period of unusually subdued growth in wages appears to be coming to an end.”
I’ve seen little evidence of that in my own pay packet, but City AM reported last month that the Recruitment and Employment Confederation has seen the fastest salary increases for new starters in three years. Almost one in three recruiters reported higher average salary awards in May.
Inflation in all its forms is the biggest fear for Sir David and the committee and nowhere has that been more visible than at petrol stations where staff seem to change the price at the pumps on the hour every hour. That does not affect the ordinary motorist but adds to the cost of anything that has to be delivered – and that includes almost everything.
The good news is that neither economic growth, wages or inflation are running out of control at such a pace that the Bank needs to take drastic action. At its next meeting it may well do nothing at all and after that a quarter-point rise is about as much as we need fear.